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Big bank shake up to give power back to consumers

New powers and penalties to increase consumer protection in banking.

09 May 2017

Consumer group CHOICE has welcomed announcements in the Federal Budget that take on problems in the banking system – especially among the major banks.

"The government has announced game-changing reforms to the banking sector alongside urgent changes to stop practices that harm consumers and ensure that customers in disputes with the banks obtain effective redress," says CHOICE CEO Alan Kirkland.

"In particular, we welcome the focus on improving competition in the banking system. This reflects the fact that around three quarters of Australians bank with the big four, despite the fact that this means they pay more in interest and charges than they should.

"Asking the Productivity Commission to review the state of competition in the banking system, and giving the ACCC additional powers to focus on competition on an ongoing basis will help us understand how to reform the sector and make it easier for consumers to get a better deal.

"Imposing a levy on major institutions recognises the enormous competitive advantages they enjoy—largely due to historic factors. It is entirely appropriate that they contribute at a higher level than other institutions.

"We also welcome the focus on the links between executive remuneration, banking culture and poor consumer outcomes. Requiring that 40% of executive and 60% of CEO bonuses be deferred for at least four years will reduce the focus on short-term profits that has led to so many of the major scandals that have rocked the sector. While further reform to banking remuneration is required, this will help make sure that big annual payments don't result in short-term sales targets that ignore consumer needs.

"Giving consumers access to their own data—as part of open banking reforms to be introduced by 2018—has the capacity to transform the way that consumers choose banking products. There's still work needed on new standards and consumer rights to data required to support this change, but eventually consumers will be able to use the data banks currently have about them to compare products based on their personal usage and switch accounts almost instantly."

"CHOICE has consistently pointed out that while big banks can approve a credit card online in 60 seconds, they do everything they can to stop consumers closing accounts. Banks will now have to make it as easy to drop debt as it is to arrange it," Mr Kirkland says

"The credit card reforms will make this high-cost, low-value sector safer for consumers. Lenders won't be able to drown customers with debt they can't afford and will have to stop unwanted marketing of increased credit limits. This will help to end the days of someone on an ordinary wage being weighed down with tens of thousands of dollars of high cost debt."

CHOICE also welcomed the announcement of the Australian Financial Complaints Authority, which will provide consumers with a single, accessible complaints resolution service when something goes wrong.

CHOICE CEO Alan Kirkland continues to act as a consumer expert and panel member as part of the Ramsay Review, which recommended the establishment of a one-stop shop for financial disputes.